PMBComments: On the State of Venezuela's Democracy

The fight for freedom, democracy and prosperity is a shared battle in an inter-dependent and hyper connected world.
For now, we are focused on Venezuela, but we do look far and beyond for perspective and lessons.
My thanks to the publications, authors and individuals whose writings or deeds have inspired many of my comments. Without them it would not be as fun to write and post.

Wednesday, December 02, 2009

De 2/09 | Is the US Losing Ground or Just Sharing It?

PMBComment This article from the WSJ is in my opinion much ado about nothing. The emergence of China as a force to be reckoned with in Latin America, Africa and Asia, is a byproduct - positive in my opinion - of its wholehearted transformation from the unproductive rigidity of Communism to the 24/7 challenges of globalized capitalism. China needs access to raw materials, markets for its products and protection for its invested surpluses. That is what all western economies have fought for and obtained over centuries. One cannot expect China to help curve inflation in the US, buy large chunks of its public debt and license western technology but remain somehow shackled inside its own vast borders. The emergence of China, of India, of the EU, and yes, Brazil, as vibrant economies is good news and the fact that it comes at the expense of US share of markets and influence should be both expected and accepted. US corporations has won and lost all over the world. The best thrive - i.e. Procter & Gamble, Mars, JPMorgan, Boeing, Walmart, and the laggards lose ground - i.e. GM, Chrysler, the airlines. Now it is the turn of the US Government to become agile, creative and competitive to avoid becoming the GM of the global political world. A retooling of the entire foreign effort of the US government is required to adapt it to new times and formidable new challenges. New technologies, new hiring practices, new messages and greater competitive drive must replace the expensive, bureaucratic, and power for power sake approach that has come to define much of what the USG does around the world. The fact that this has to be done in times of huge budget deficits and a complex war on terror makes it tougher but not less urgent. The emerging powers are showing survival and competitive instincts and habits that have to be reckoned with and not neutered. The US will not lose its role a the moral powerhouse of the world any time soon, but it has already recognized it needs the help of others to maintain itself, and the world, prosperous and in peace. The succinct quote from Moises Naim on Brazil deserves especial attention: "The world was hoping that it would become a responsible global player and stakeholder, but instead Brazil is behaving like an immature developing country with a chip on its shoulder". If US arrogance was many times its downfall, the schizophrenia of Brazil under President Lula will be its Achilles' heel. From the looks of things, the months to come will further diminish Brazil's clout as Lula, and his PT cohorts, further tinge Brazil's foreign stances with the colors of an internal make or break presidential and congressional campaign. PMB

WSJ DECEMBER 2, 2009U.S. Faces Rising Resistance to Its Latin American Policy

By JOSé DE CóRDOBA and DAVID LUHNOW

The U.S., which once considered Latin America its own backyard, is having an increasingly tough time calling the shots in a region where countries like Brazil and China are vying for influence, and where even tiny Honduras stands up to the "Colossus to the North."While the U.S. remains the dominant player in Latin America, its clout is curtailed by several factors, including Brazil's rise as a regional power, the influence of a clique of anti-American nations led by oil-rich Venezuela, and the growing muscle of China, which sees Latin American resources as key to its own economic growth.

The Obama administration, though popular in much of the region, has found itself squabbling over a host of issues, from Cuba to the U.S. military's use of bases in Colombia to how best to resolve the Honduran crisis.Honduras stood firm on the ouster of President Manuel Zelaya. The U.S. and other foreign governments pressured the interim government to let Mr. Zelaya serve out his term, which ends in January. But the provisional government hung on long enough to hold Sunday's presidential election without reinstating Mr. Zelaya.

Honduras's refusal to buckle startled the U.S., which has historically cast a long shadow over the country -- the original "banana republic," where through much of the 20th century, American fruit companies exerted enormous influence on governments. In the 1980s, Honduras served as a base for U.S.-backed Contra rebels fighting the Sandinista government next door in Nicaragua.

Analysts say the Obama administration and many Latin American nations underestimated how strongly Honduras's provisional government felt about the threat posed by Mr. Zelaya, a close ally of Venezuela's Hugo Chávez.

"Everybody underestimated just how widespread the fear of Chavismo -- rightly or wrongly -- was in Honduras," says Michael Shifter, vice president for policy at Inter-American Dialogue, a think tank in Washington.

Resenting their historic dependence on the U.S., Latin American countries complain when it ignores them, but condemn what they see as American interference -- all the while looking to the U.S. for answers to Latin American problems.

Contradicting the U.S. used to be "unthinkable," said Moises Starkman, who serves as an adviser to the interim government and also advised Mr. Zelaya. But "we felt our whole system was hanging in the balance," he said.The U.S. eventually changed course, signaling it would recognize the Honduran vote as the only way to clear the impasse. In doing so, it broke with much of Latin America, including Brazil.

That split is the latest fly in the ointment in relations with the region. Washington was especially angered by Iranian President Mahmoud Ahmadinejad's visit to Brazil, part of a tour during which he also visited Venezuela and Bolivia, and won backing for his country's controversial nuclear program. Brazil has raised questions recently about the expanded U.S. use of military bases in Colombia, while Venezuela has called the move a prelude to U.S. invasion.

One reason the U.S. is having a harder time carrying out its agenda is that Latin America is deeply divided between pro-U.S. nations such as Mexico, Colombia and Peru, and a bloc of populist countries including Venezuela, Bolivia, Ecuador and Nicaragua.

Mr. Chávez also has sometimes found allies in Argentina and Brazil.

Brazil's emergence as the hemispheric powerhouse is turning into a challenge and -- in foreign-policy terms -- a disappointment for President Barack Obama, who, like George W. Bush, developed a close relationship with charismatic President Luiz Inácio Lula da Silva. "The world was hoping that it would become a responsible global player and stakeholder, but instead Brazil is behaving like an immature developing country with a chip on its shoulder," says Moisés Naím, editor of Foreign Affairs magazine.

Economic woes have also diminished U.S. influence. China is financing Brazil's state-owned oil company to the tune of $10 billion. "We don't have $10 billion to give. We have deficits, China has surpluses," says Riordan Roett, a Latin America expert at Johns Hopkins University.

The Honduran crisis showed the double standard, when Mr. Chávez complained Washington wasn't doing enough to press Honduras to restore Mr. Zelaya.Former Mexican Foreign Minister Jorge Castañeda says the crisis is a lesson for Mr. Obama in the limits of cooperation. "You can't follow the Latin Americans given how polarized the region is," says Mr. Castañeda. "You have to take a stance, and hope that the others will follow you."—Nicholas Casey contributed to this article.

Tuesday, December 01, 2009

Dec 1/09 | As Expected, The Revolution Eats Those Who Fed It

PMBComment XXI Century Socialism turned out to be - as long predicted - nothing more than a tropical, i.e. half baked, version of the early 20th Century US Robber Barons. The key difference is that the US version of unrestrained capitalism was the quasi monopolistic exploitation of unregulated sectors by brilliant entrepreneurs; while in Venezuela, we have the blatant looting of the State by individuals fronting for, or acting in cahoots with, the principle figures in the Bolivarian Revolution. Under the Chávez family, impunity replaced ingenuity, and gluttonous consumption passed as farsighted investment. I have always mocked the gap between the anti-capitalist bla-bla of Mr. Chávez and the rapacious capitalism of his family members and assorted cronies - now, the resulting abyss, full of red ink, is there for all to see. The sudden fall from grace of Mr. Fernandez Barrueco, and his cohorts, described succinctly in the note below, is probably the beginning of the last chapter of a corrupt and incompetent government that magnified the ills of the past while it dynamited all that actually functioned in the country. Socialismo, Patria y sobre todo, muerte y destrucción! PMB

CARACAS -- Venezuela said Monday it will liquidate two banks owned by businessman Ricardo Fernandez and temporarily shut two others, intensifying a showdown between President Hugo Chávez and a billionaire long considered a close ally.

Mr. Fernandez, who made an estimated $1.6 billion largely through government contracts, was seen by many Venezuelans as the epitome of the crony capitalism they say has flourished under Mr. Chávez.

It is unclear why the government moved against him. Some analysts here believe Mr. Chávez wants to be seen as tough on corruption amid an economic downturn. Others suggest the arrest and bank closures represent a behind-the-scenes battle over this oil-rich state's lucrative spoils.On Sunday, Mr. Chávez suggested it was the former, taking to the airwaves to attack Mr. Fernandez and others who have profited from government connections. "There are people out there that say that they are revolutionary and are doing business. A true revolutionary is not going around doing business for profit," he said on his weekly television show.

Bank employees and customers outside a branch of Ricardo Fernandez's Banco Canarias, which Venezuela announced Monday it will liquidate.

Mr. Fernandez, 44, turned himself in to Venezuela's secret police on Nov. 20, hours after the government took over the management of four failing banks that he and a group of investors had bought over the course of the past year. He faces up to 10 years in prison on charges of illegally using depositors' money, self lending and criminal association.

The government says Mr. Fernandez's banks made illegal loans for as much as $846 million. The alleged violations were on record for months before the government's financial watchdog moved on them.

Antonio Guerrero, Mr. Fernandez's lawyer, says his client's legal problems are the result of an inaccurate audit of the banks books. "The charges are totally false and without foundation," he says.

In Caracas, depositors lined up outside the four banks, which were acquired by Mr. Fernandez and partners over the past year and account for about 6% of deposits in the country's banking system. About 750,000 people are affected by the announced liquidation of Banco Canarias de Venezuela CA and Banco Provivienda CA. The government says it wants to rehabilitate the other two, Bolivar Banco CA and Banco Confederado SA.

Many analysts and bankers in Caracas believe Mr. Fernandez's troubles signal a struggle between powerful factions in the Chávez government. "Something changed in his relationship with the Chávez power structure," said José Guerra, a former Venezuelan central bank director.Mr. Chávez, who has been in power for more than a decade, has expanded the state role in the economy at the expense of the country's traditional business class. But his rule has created a class of connected businessmen who have won big government contracts -- derisively called the "Boliburgueses," or Bolivarian Bourgeois, a play on Mr. Chávez's self-styled Bolivarian revolution.

Mr. Fernandez was the most powerful of these, analysts say, and Mr. Chávez's favorite banker. State institutions account for more than 42% of Banco Canarias's deposits, or $2.13 billion.These people also say Mr. Fernandez was close to power brokers including Diosdado Cabello, the public-works minister, and Mr. Chávez's older brother and mentor Adan, currently the governor of Barinas state. Spokesmen for Mr. Cabello and Adan Chávez declined to comment.

Mr. Fernandez, the son of a Spanish immigrant who owned parking lots in Caracas, became the prime provider of food products to Mercal, a government-run store chain that sells subsidized foods to poor Venezuelans. Now known as the "King of Mercal," he employs some 18,000 people.He broke into the inner circles of Mr. Chávez's government in 2002 after Venezuelan business leaders backed an ill-fated general strike in a bid to topple Mr. Chávez. Mr. Fernandez offered his trucks to the government to help distribute foodstuffs.

He expanded his investments in food producers to meet government contracts. The government backed his group, which was a rival to Venezuela's largest private company, food producer Empresas Polar SA, which Mr. Chávez has threatened to nationalize.

By 2005, his net worth was $1.6 billion, according to a "statement of financial condition" drawn up by Caracas accounting firm Alcaraz Cabrera Vasquez, KPMG's Venezuela affiliate. The firm declined to comment, citing client confidentiality.

Orlando Ochoa, an economist critical of Mr. Chávez's economic policies, says Mr. Fernandez's arrest could suggest rising influence of Socialist ideologues within the government who disdain the Boliburgueses. The nod for intervention in Mr. Fernandez's banks came from Finance Minister Ali Rodriguez, a former leftist guerrilla and self-described Marxist.

Others in Caracas believe Mr. Fernandez's arrest is a pre-emptive strike by Mr. Chávez against legal moves by U.S. authorities against the businessman.

In 2007, the U.S. Drug Enforcement Administration confiscated a private plane belonging to one of Mr. Fernandez's businesses because it was incorrectly registered in the U.S. In an affadavit, the DEA said such registrations were typical of people involved in illegal activities who sought to minimize searches, letting foreign owners "use the airplane to traffic drugs, arms, or cash."

In 2008, Miami prosecutors fined Mr. Fernandez's U.S. company $1.1 million, saying the confiscation had been solely due to the faulty registration, and not because the aircraft was involved in illicit activities. Mr. Fernandez has also had his U.S. visa revoked, says Mr. Guerrero, his lawyer.

"Mr. Fernandez has been subject to sanctions because he is identified with President Chávez," said Mr. Guerrero.